Mark Carney, it's time to tighten

The CPI inflation increased to 2.7% y/y in April, a rise from 2.3% y/y in March. This exceeds the consensus expectations of 2.6%

British inflation continues to overshoot the 2% inflation target from the Bank of England (BoE) and is likely to do so in the coming months. While monetary conditions in the UK have been tightened since the end of 2016, the monetary stance is still too dovish to bring back inflation to the 2% inflation target in the medium-term. We therefore expect the upward pressure on inflation to continue over coming 12 months or so.

Given recent underlying inflation trends and current monetary conditions we forecast British CPI-inflation at 2.5% in 2017, 2.6% in 2018 and 2.3% in 2019. The forecast also takes into account some tightening of monetary conditions going forward reflecting the BoE’s historical (degree of) commitment to hitting the inflation target.

Time to tighten

Since the start of the year, Britain has experienced persistent inflation rates above 2%. To counter this the BoE will have to tighten monetary conditions even further. While the upcoming parliament election and future Brexit negotiations might delay the timing of the tightening it will nonetheless be necessary to keep inflation on the right track going forward.

Read more in our Global Monetary Conditions Monitor

If you wish to stay updated on monetary conditions in the UK and 24 other countries see more on our monthly publication Global Monetary Conditions Monitor here.